International Business Machines (IBM) has had a turbulent year. It was bottoming in an almost perfect way back in July due to overextension on the stock. That went on for a couple of weeks until the stock gained control over its downward trend again. It them turned completely around and produced a pristine failure at resistance on the 50-day moving average (DMA). Now, near the end of 2013, the stock has continued to follow its 50 DMA trend, which continues to be downward. This might keep most stock investors away. However, the resistance involved in the downward DMA is different than it was over the summer, and that makes a difference in the desirability of investing in the stock.
In fact, when IBM stock fell 6.4 percent in October, many investors did not sell and instead took their call options. The stock went up pretty significantly a week after the October earnings report was released. It quickly went down again, but has managed to move up just enough since then to close above its most recent 50 DMA. This is significant.
IBM's Current Position on the Stock Market
Right now, IBM appears to be a cheap stock for anyone looking to invest in a known, comfortable company at a good price. While it may not perform heroically for the remainder of the year, it has been in the market for a long time and has seen its fair shares of ups and downs. Past performance and current trends indicates good days are still ahead for the stock and that it has not yet seen its peak performance.
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Right now, IBM stock is down for the year by 3.2 percent. It's been performing very poorly in relation to the overall market. It has had declining revenues for six consecutive quarters and is only paying a 2.1 percent annual dividend to investors. Most seasoned investors with diversified portfolios are staying away from it, but the bargain hunters are snapping it up. These people who are scouring the bottom of the stock pool may be the ones who end up being the winners in the end, and here's why.
Fundamental Analysis
While 2013 was a disappointing year for those investing in IBM stock, it doesn't look like that trend will continue. There are several indicators pointing to this.
First of all , management at IBM acknowledged they had a poor execution of their sales strategy this year and already have plans to rectify that next year. This is good news for investors, since management recognized their mistakes and admitted to them. This makes a correction much more likely.
Further , many areas of IBM's hardware business suffered financially this year because the company had too many offshoots to manage. This year, the company is already discussing turning some of that hardware into separate companies, which will allow IBM itself to concentrate more on its proven moneymakers like computer services and software. The fact that it was able to increase its Backlog Catalog by one percent this year is a good indicator of how well it could do it it concentrated on its strengths. There were also deals for software development in place this year that did not materialize. Hopes that they will materialize next year are a great incentive to higher-end investors to snap up this stock while its prices are still low.
Conclusion
Though some technical obstacles still stand in the way of IBM making a big comeback next year, these obstacles all have the strong potential to be overcome through a variety of means already in place. If enough sellers jump off of their IBM holdings now, it will drive the price down even further, making it an easy buy and hopefully an easy profit for investors who see the company's long-term potential based on its current fundamentals.
IBM stock should really be an easy buy for most investors who have taken the time to do the research. While it has had its shares of ups and downs over the years, and 2013 in particular has been a down year, it has been up plenty of times, too. Current trends seem to indicate that it is heading back in that direction. It has slowly moved up higher on the stock charts as 2013 has drawn to a close. Also, it has experienced a lot of hardships this year that can't be expected to continue into next year, especially with company executives already acknowledging their mistakes this year and planning to correct them in the coming quarters. The bad performance of the stock this year has inched out a lot of investors, making IBM ripe for the picking for bargain hunters looking to make a good profit off of the skittishness of others. IBM looks to be in a position to be an excellent recovery stock next year and moving forward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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